Posted on 31st July, 2015
Posted on 31st July, 2015
by James Codling
Why the investment market needs VentureFounders
I’m often asked in press interviews and meetings with investors why I left a great job in Private Equity to become an entrepreneur and start my own venture.
It’s a valid (and very important) question to ask. The truth is there were some things that I loved about Private Equity, but there were also some things I thought could be done better. I therefore decided to try and do it my way by creating a new, fair, sophisticated way for individuals to invest in fantastic growing British businesses.
So what did I love about Private Equity? I really liked the total symmetry of interest between fund managers and underlying investors in the businesses they both backed. That’s something I really value and wanted to keep with VentureFounders.
I also really like that in Private Equity, the investment isn’t the end of the journey and that there is a partnership after the buyout, which supports the management and the business.
This extends onto another area I feel strongly about, the sense of value creation and growth. I’m a big believer in supporting home grown businesses so they can be nurtured and thrive to support the British economy. These are the businesses I want to promote and help, and I can see that Britain is once again becoming the grass-roots epicentre of new, disruptive, innovative businesses.
This notion goes some way to explain why I found Private Equity to be quite a frustrating industry to work in. Although there are a large number of Private Equity fund managers trying to do different things and targeting different niches, the long-term trend in the industry is to do larger deal sizes with more established businesses.
Private Equity is at risk of essentially becoming an industry in which firms trade large (and low growth) assets between one another, using leverage to drive return. This works for enterprise-level, established businesses, but it shuts out growing businesses that have great management teams with huge potential.
It is also a slight myth that Private Equity fund managers invest in the businesses themselves, most of their return is driven by a profit share on exit (carry) if they have delivered a return for their investors. These returns can be sizeable, but is it right that fund managers can be made super wealthy without having taken any real risk of their own?
While I agree with the alignment of interest in having a profit share, having skin in the game is incredibly important. We value the management teams having skin in the businesses we support and therefore we adopt the same philosophy. We only present our investors with opportunities that our senior team would – and do – actually invest in. We have a long-term commitment to the entrepreneurs we back and provide them with a wealth of experience to accelerate growth at every stage of the investment journey.
I really value the lessons I’ve learned from my past experiences and they’ve helped me to create something completely new. In creating the VentureFounders platform I aim to use the best bits of Alternative Finance and combine them with traditional investment principals and mind-set, in order to make Angel style investing in growing British businesses more affordable and accessible.